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The IRS Is Wrong: Butane Is an Alternative Fuel

In this TaxNotes article, the authors argue that Internal Revenue Service (IRS) Rev. Rul. 2018-2, 2018-2 IRB 277 is wrong and that butane is an alternative fuel. Ryan President of U.S. Operations Damon Chronis, Principal David Pustejovsky, and Director Brian Browdy and Miller & Chevalier lawyers Adam Feinberg, George Hani, and Andrew Howlett explain how IRS Rev. Rul. 2018-2, 2018-2 IRB 277 incorrectly assumes that the butane found in gasoline-butane mixtures cannot be both a taxable fuel and an alternative fuel for purposes of the alternative fuel mixture credit.

According to the authors, Section 6426(d)(2)(A) defines alternative fuel to include liquefied petroleum gas (LPG). Butane is undoubtedly an LPG, as the petroleum industry and Treasury’s own regulation recognize. Thus, under the plain language of the statute, butane is an alternative fuel. Rev. Rul. 2018-2 fails to address this fundamental point. Assuming the IRS is correct that butane is a taxable fuel, it fails to consider that it simultaneously can be an alternative fuel.

In their view, the authors believe there are other reasons why the IRS ruling is wrong and conclude “no matter how these issues are resolved, one truth remains: Butane is liquefied petroleum gas and thus an alternative fuel under the statute.”